Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

China's First Experience with Paper Fiat Money

Economics / Fiat Currency Jul 21, 2008 - 11:31 AM GMT

By: Mike_Hewitt

Economics Paper, one of the four Great Inventions by the Ancient Chinese along with printing, the compass and gun powder, was invented by Cai Lun in 105 A.D. from bark, rags, wheat stalks and other materials. The first historical use with paper money began shortly thereafter around 140 B.C., nearly 1800 years before its arrival in Europe. How this money came to an end is not known.


The first well-documented use of paper money is with the "flying cash" of the Tang (618-907) dynasty used around 800 A.D. The term "flying cash" was used because of its tendency to blow away in the wind unlike metal coins, known as cash . The government issued the paper in lieu of coins to remove the burden of moving large quantities of metal over vast distances. It was not a 'legal tender' but merchants did begin using them as a convenient method of exchange.

This practice expanded during the S'ung (960-1279) dynasty to include paper certificates issued by up to sixteen note-issuing houses. Each note had pictures of houses, trees and people on it using a mix of red and black inks with a seal of the issuing-house and confidential marks to make counterfeiting difficult. Widely circulated, they were readily accepted for the payment in debt and other financial obligations.

In 1020, vast amounts were created to buy off potential invaders from the north leading to their rapid depreciation. In 1023 these notes were withdrawn, and only official notes printed by the government were allowed. The money issued by this bank was dated and had printed on it a notice stating it was valid for three years. Expiring notes could be exchanged for new ones at a 3% charge.

Problems of over-issuance of currency lead to high prices during the Chin (1115-1234) dynasty. Various schemes were adopted based on the government monopoly on tea and salt, but all failed from lack of commitment and increasing costs of war with the Mongols. In 1160, Emperor Kao Tsung reformed the Chinese paper currency as earlier issues had been excessive and became nearly worthless. A new issue was produced, but hyperinflation resumed by 1166.

In 1217, the Mongols successfully invaded from the north. The Mongol empire issued paper money on a moderate scale in 1236, known as the First Mongol Issue. By 1260, the Mongol note circulation reached a substantial level.

The Yuan (1264-1368) dynasty forbid the use of gold and silver as currency and demanded that a certain percentage of taxes be paid using paper money. Excessive printing year after year soon flooded the market with depreciated paper money until the face value of each certificate bore little or no relation to its counterpart in silver. In 1272 a series of new issues were put in circulation at a conversion rate of five old notes to one new one. This became known as the Second Mongol Issue.

When Marco Polo visited China (1275-1292, he was so impressed by paper money that he wrote a whole chapter in his Travels , describing everything about its manufacture and circulation. He described the manner in which it was issued:

"All these pieces of paper are issued with as much solemnity and authority as if they were of pure gold or silver; and on every piece a variety of officials, whose duty it is, have to write their names, and to put their seals. And when all is duly prepared, the chief officer deputed by the Khan smears the Seal entrusted to him with vermilion, and impresses it on the paper, so that the form of the Seal remains printed upon it in red; the Money is then authentic. Anyone forging it would be punished with death."

He wrote that the emperor of China made so many notes each year that he could buy the whole treasure of the world, 'though it costs him nothing'. When Marco Polo returned to Europe in 1296 people met his comments regarding Chinese paper money with unbelief and rejection.

While Marco Polo reported relative success of the Chinese monetary system in Europe, continued depreciation required another revaluation in 1309. The Third Mongol Issue followed the same 5:1 ratio of its predecessors. In an effort to reduce the amount of notes in circulation the government often refused to exchange new issues for old certificates that had been worn out through use.

A Ming dynasty 200 cash noteAround 1350, during the final phase of the Mongol dynasty, huge efforts were made to correct the currency. Paper notes issued by private, provincial and central government agencies had resulted in an explosion in credit and subsequent precipitous fall in its value.

In 1374, the new Ming dynasty issued it first paper money, known as Ta Ming T'ung Hsisng Pao Ch'ao ("Great Ming Precious Notes"). These notes were inconvertible to coin and little effort was made to maintain its value. Six different issues are known to have occurred between 1368-1426 although it is likely that there were many more.

Figure 1. A Ming dynasty 200 cash note. The pictorial presentation is of two strings of ten 10 cash coins. The lower panel text reads: "The Board of Revenue, having petitioned and received the imperial sanction, prints the Great Ming Precious Note, to be current and to be used as standard copper cash . The counterfeiter shall be decapitated. The informant shall be rewarded with 250 taels of silver, and in addition shall be given the entire property of the criminal."

The value of these notes rapidly declined and by the early 15 th century, the ratio between the paper and coin exceeded 300:1. The Great Ming Precious Notes eventually disappeared from commerce and there are no known references to paper money being in circulation after 1455 thus ending China's first 650 years of experience with paper money.

For the next 500 years China functioned under a silver economy that ended following Chiang Kai-shek's rise to power in 1927 and formation of a Central Bank (click here for more).

By Mike Hewitt
http://www.dollardaze.org

Mike Hewitt is the editor of www.DollarDaze.org , a website pertaining to commentary on the instability of the global fiat monetary system and investment strategies on mining companies.

Disclaimer: The opinions expressed above are not intended to be taken as investment advice. It is to be taken as opinion only and I encourage you to complete your own due diligence when making an investment decision.

Mike Hewitt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in